Investment showdown -- beyond the Roth, SDP, & TSP

[Champ Kind]

What's the difference between a debit card and a credit card that you pay off in full every month?

Because the only person you "owe" any money to when you use a debit card is yourself. Not a credit card company.

I started using a debit card in the same manner as epsilon a while ago and I have not looked back. I have a separate account with a debit card(free with USAA) that I keep a minimum amount of money in and contribute to every paycheck. I think of what is in there as my line of credit, and if I dip below that pre-determined minimum amount, then I owe that back to myself.

I know that people who have given up on credit cards will always seem a little cooky to those that swear by them and take advantage of all of their little bennies/promos, just like you guys seem crazy for playing with the snakes that are credit card companies every month. We will all probably wind up in similar financial situations when it is all said and done. The difference is that I will never have owed any body anything when I get there.

[Day Man]

the only difference for me with a USAA credit vs debit card is going in every couple weeks and clicking "pay balance"...I treat the credit card like a debit card and don't spend money I don't have.

Maybe slightly off topic, but can anyone give investment advice for a new 2Lt? Zero debt, only living expenses are gas and groceries which is maybe $400 of the $2800 I'm getting every month. I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

how comfortable are you with investing? USAA has free financial advisers only a phone call away, and Morningstar is free for military through the AF portal under Library.

Edited September 10, 2012 by day man

[Danny Noonin]

I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

No need to wait. You can contribute up to $5K in a Roth IRA starting today.

[Gravedigger]

I know that people who have given up on credit cards will always seem a little cooky to those that swear by them and take advantage of all of their little bennies/promos, just like you guys seem crazy for playing with the snakes that are credit card companies every month. We will all probably wind up in similar financial situations when it is all said and done. The difference is that I will never have owed any body anything when I get there.

I just simply can't comprehend that line of thinking. Some company is offering to pay me several hundred dollars a year for paying one easy automatic monthly payment (from my debit account), without charging me interest, and somehow that's a bad deal?

I understand the people that have no ability to control their spending, but I stick to a strict budget, and the money is going to be spent either way each month. You are actually decreasing your wealth by using a debit card.

This is not some sort of gimick, for every $7,500 I spend I get a check for $100. When you spend $7,500 you get jack. There is no argument that could ever prove that $100 check is worse than $0 for the same money spent.

[sky_king]

Maybe slightly off topic, but can anyone give investment advice for a new 2Lt? Zero debt, only living expenses are gas and groceries which is maybe $400 of the $2800 I'm getting every month. I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

If you want to put no thought into it what so ever, putting 20% of your paycheck into 2030 or 2040 TSP every month and letting it sit there will give you more of a retirement account than 90% of your peers. Just the fact that you're saving it and not buying a new BMW and motorcycle makes you better than most.

[Swizzle]

Cash is king, I agree (caveat: when the government that backs it is working). Gold is..._____?...historically proven over the last 5,000+ years....what cash can say that?

Using a credit card is better than a debit card because you get some cash back or rewards. Not using one is dumb because you'd miss out on benefits, albeit delayed. If you use your credit card like a debit card, you get points or cash or rewards. Debit cards' reward programs stopped after Congress capped the fee-for-use on them. Now the fees are still there but their margin is so slim that consumer benefits aren't financially feasible - reference USAA stopping Debit card rewards; instead banks/credits pocket transaction fees.

Also factor in the opportunity cost "benefit" of having the money sit in your money market account accruing interest for 30+ days while you wait for a statement, then paying off your statement versus instantly paying with debit. No credit fees incurred, more savings interested gained.

[TAMInated]

I knew we were in trouble when all of my ART brothers i worked with were buying 300K houses using zero interest loans.

Anyone know where I can get one of those zero interest loans?

[Swizzle]

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When do you think the economy will come back (i.e. normal growth)? Who thinks the economy will slump after we bring back the troops? Will they add to the unemployed? Will the future US economy follow historic trends after wars?

[Champ Kind]

When you spend $7,500 you get jack.

When I spend $7,500, I get $7,500 worth of a product or service, and peace of mind.

Also, I forgot to mention earlier that there have been studies done (not going to waste time finding the links, and I don't have them bookmarked) that people tend to spend more money when they "swipe" with a credit card versus pay in cash, mainly because people tend to think twice about spending money on something when they use cash versus swiping a card - probably because spending cash has been proven to trigger responses in the brain that stimulate the pain receptors, versus swiping a card which actually stimulates satisfaction.

Listen guys, I'll never convince you otherwise, and you'll never convince me. That's cool .

My kids will grow up learning that they pay cash for everything, and if they look in their wallet/purse/piggy bank/whatever, they wait to buy it, and they will never go in debt to anyone with the exception of a house in which the payment will fall within a certain percentage of their income given a certain type of mortgage.

Enjoy your miles and .69% rebates!

[nsplayr]

When I spend $7,500, I get $7,500 worth of a product or service, and peace of mind.

Your peace of mind costs you at least $75 per $7,500 you spend, even with a very conservative cash-back card that gives 1% across the board. That might be worth it to you but it is a real cost. There's only risk if you suddenly go against you're pre-determined spending and budgeting ROEs, which is possible but unlikely if you are principled and even that risk exists paying cash-only because you could suddenly change your mind about that and run up credit card debt almost as easily.

Anyways, agreed it's not really a debate, just technique only.

Enjoy your miles and .69% rebates!

I do enjoy spending 5% less at Target instantly and getting 6% cash-back at the grocery store and 3% cash-back at the pump, who wouldn't?

[sky_king]

Enjoy your miles and .69% rebates!

Like wise, enjoy your 0 credit score and higher mortgage interest rate.

[Gravedigger]

Listen guys, I'll never convince you otherwise, and you'll never convince me. That's cool .

Fair enough. I'm going to go put some beers on the ole' AMEX now.

[ThreeHoler]

Like wise, enjoy your 0 credit score and higher mortgage interest rate.

This is not necessarily true.

[guineapigfury]

The cash back and airline miles are all well and good, but the real benefit to credit cards is the fraud protection. Dispute a wrongful charge with AMEX or Visa and that bitch disappears. Good luck trying to get your money back with your debit card. I learned this the hard way with autobill pay. Also, free insurance on rental cars is nice.

Edited September 11, 2012 by guineapigfury

[matmacwc]

The cash back and airline miles are all well and good, but the real benefit to credit cards is the fraud protection. Dispute a wrongful charge with AMEX or Visa and that bitch disappears. Good luck trying to get your money back with your debit card. I learned this the hard way with autobill pay. Also, free insurance on rental cars is nice.

Visa is Visa, MC is MC, you get your money back.

[Swizzle]

[Fud]

Maybe slightly off topic, but can anyone give investment advice for a new 2Lt? Zero debt, only living expenses are gas and groceries which is maybe $400 of the $2800 I'm getting every month. I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

First, congrats on having zero debt. I would max out your TSP (not sure if 20% is maxing it out because I don't do TSP), and start maxing out a Roth IRA ASAP. Compounding interest will be your friend in the not so distant future if your fund does well. I'm looking into switching my Roth to Vanguard instead of USAA, but that is a personal decision you'll have to make for yourself. I would come up with goals for savings as well. You would do well to have an emergency fund of at least 3 months pay. I hold this amount in a mutual fund that can be liquidated as needed, but not for less than $250.00 for an expense. Say the engine falls out of your car one day. Instead of paying for a warranty or protection plan, you can save that money and pay for a new engine. I would also save for a future home and have a car fund. I linked Dave Ramsey's site earlier in the thread (1st page maybe) with something about driving cars for free, so check that out.

There are many things you can do with your money, but make your own goals and your own plans for the future. Dave Ramsey/Robert Kiosaki/any other wealth "guru" are not always right. I'd make it where you know enough about finance/investments so you know what you are doing, but not to where it drives you nuts when you see investment amounts fluxuate over time. My methods aren't perfect I'm sure, but I'm comfortable with my finances, and can't even begin to tell you how good that makes my "stay-at-home" wife feel while I'm away. I'm secure, she's secure, and the rug rats are taken care of.

[Swizzle]

Emergency fund is a sound part of any investment strategy. It keeps you from pulling from "pure" investments (IRA, 401, TSP, etc...)

Optional stash locations: weekly rolling CD's, money markets, and mutual funds. The point is to personally insure your own finances, but that doesn't mean you can't put that money to work while it's waiting for the emergency. Just keep it accessible - near liquid. The emergency fund is a step one in my book. It's the base of the pyramid and is the insurance foundation for all the other good things.

[BB Stacker]

Maybe slightly off topic, but can anyone give investment advice for a new 2Lt? Zero debt, only living expenses are gas and groceries which is maybe $400 of the $2800 I'm getting every month. I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

As others have said, max out a Roth IRA...personally I'd do that before TSP given the likely better rate of return on the IRA (provided you find a quality fund of course), although with your circumstances you can probably afford both. The biggest thing is to save early and often...one of the best things anyone ever did for me was when my dad took me aside when I got my first "real" job in high school working summers landscaping and hammered into me that since I was in high school I didn't have any real required living expenses and I should therefore dump the vast majority of the $3-4K I generally made into a good Roth IRA because compounding was my friend (and just like the CZTE putting money you didn't pay income tax on into a Roth is always a sweet deal.)

I'll also second the emergency fund suggestion...that's one area I'm a little weak on now but working to fix. You've got the money to do so now, start working to get 6ish months worth of pay stashed away...rolling CDs, money market, or a mutual fund are all good choices, just like Swizzle said make sure wherever you end up putting it the money is liquid.

[MC5Wes]

Anyone know where I can get one of those zero interest loans?

My Bad, I meant Zero Principal.

[sky_king]

BTW, mint.com is a great site for tracking your expenses and investments. It helps me show my wife where the money is going when we have a quarterly "Come to Jesus" meetings about expenditures.

[Danny Noonin]

As others have said, max out a Roth IRA...personally I'd do that before TSP given the likely better rate of return on the IRA (provided you find a quality fund of course),

Except "quality funds" are not the reason to go Roth before TSP for retirement savings. The differences are in the way they are taxed.

As a 2Lt making no money (therefore paying a low tax rate), max Roth first. Pay taxes on the money while you are in the 15% bracket because odds are you will be in a higher bracket in retirement. After you've done that, put as much as you can in TSP.

Edited September 11, 2012 by Danny Noonin

[MacGyver]

The ROTH IRA can also double as an emergency fund, since for ever $1 you put in you can take out at anytime with no penalty. It is only the interest accrued that you cannot withdraw until retirement. Not a good habit to get into, but it is better than having an emergency fund that accrues dismal interest rates in a savings account.

[Bishop]

I do enjoy spending 5% less at Target instantly and getting 6% cash-back at the grocery store and 3% cash-back at the pump, who wouldn't?

Where are you getting 6% back at the grocery store? are you paying a fee for your card?

[Fud]

Emergency fund is a sound part of any investment strategy. It keeps you from pulling from "pure" investments (IRA, 401, TSP, etc...)

Optional stash locations: weekly rolling CD's, money markets, and mutual funds. The point is to personally insure your own finances, but that doesn't mean you can't put that money to work while it's waiting for the emergency. Just keep it accessible - near liquid. The emergency fund is a step one in my book. It's the base of the pyramid and is the insurance foundation for all the other good things.

The best thing to do is never pull from your Roth for any reason. Unemployment or an extreme emergency would be the only case where you should do this.

The ROTH IRA can also double as an emergency fund, since for ever $1 you put in you can take out at anytime with no penalty. It is only the interest accrued that you cannot withdraw until retirement. Not a good habit to get into, but it is better than having an emergency fund that accrues dismal interest rates in a savings account.

I don't recommend this strategy either, and I understand you're not advocating for it. The emergency fund we use, again not for everyone, is a money market account. It is not there for intereste accrual, but for big, unintended expenses we incur. The other factor is that this fund is completely liquid, and can be accessed immediately.